Paper Supplement -- Due South

Waste Management's Raul Garcia discusses Mexico's growing role as a consumer of scrap paper.

The Chinese market has been a much talked about end market for recovered fiber. Perhaps lost in the shuffle has been the Mexican market. This Latin American market has generated a steady supply of business for vendors, especially in the Southwest.

As in other regions, there are concerns as well as opportunities for people looking to ship to the nation sharing America’s southern border.

In an exclusive one-on-one interview with Recycling Today senior editor Dan Sandoval, Raul Garcia, an export sales executive for Waste Management Inc., Houston, with a focus on developing the Mexican market, talks about the future of Mexico as a consumer of scrap paper grades.

A. I would say NAFTA has played an important role with the Mexican economy in general. Since 1994—and even before with the opening of the Mexican economy in 1992—there has been increasing trade between both countries.

Before NAFTA, most of the shipments of scrap paper to Mexico were by railroad cars. Now there is a lot of paper being moved by trucks, especially to the Northern mills around Monterrey.

I would say southern states like Texas have really benefited from this development. Another thing that I always try to emphasize is the maquiladora phenomenon. It is an example of the NAFTA boom. These maquiladoras have been growing at a 10 percent pace annually.

Last year we had 3,600 maquiladora operations that are the assembly line facilities around Mexico. Because of that there have been a lot of recycling operations developed on both sides of the border.

A. The maquiladora is the concept and the name for the assembly line facilities that were born back in 1960s. Many more were developed in the last ten years, last five years. They are along the border. Two years ago Mexico allowed them to be inside the country. Most of them are around the border of the United States. They get parts from the United States, put it together and then ship it back to the United States. They are creating a market for recycling. There are a lot of people there doing a lot of efforts in terms of recycling.

A. I see Mexico continuing to grow in the consumption of recovered paper. If you look at the demographics of Mexico, you see that 34 percent of the population is under 15 years old. This by itself tells you the potential for growth is tremendous. If we look at the paper consumption, Mexico’s per capita consumption of paper it is about 110 pounds; the United States is around 770 pounds. So I think it also tells you there is great potential for growth.

This growth, however, will come from the ability of the country to increase the standard of living for the population. There is a new hope that with the opening of democracy in Mexico, and the new government, the benefits of economic growth will reach the bottom [tier] of the population. Maybe it won’t happen in the next year or next two years, but it will come. I am really confident it will happen.

A. Mexico is importing about 1.5 million tons of recovered paper annually from the United States. For example, OCC (old corrugated containers) and ONP (old newspapers) account for 65 percent of the total imports, or about 970,00 tons. These grades, however, have been static. Not that they don’t grow, but on a percentage basis they have been static over the past five years.

The real growth has been with the de-inking grades. As you know, one of the most dynamic sectors in Mexico is the tissue business. That is where the real growth is. If you look at the packaging industry, today in Mexico there is an overcapacity in that sector. Therefore, by looking at that, by looking at printing and writing papers this suggests to me the demand for paper will be on grades like coated book stock, sorted office waste, perhaps ONP, and not really a stronger demand for OCC.

Also, as some of the older wash systems are updated to add flotation (a more sophisticated type of process whereby paper is de-inked), paper grades like coated groundwood, such as flyleaf shavings, will become really important going into Mexico as a product for de-inking.

A. It has been blown out of proportion. There are some problems. There are always new things going on in Mexico. In order to do business there we need to be informed of what is going on. The better you know your customers the better off you are.

Mexico is a country until recently where the interest rates were too high to operate on commercial credit. Many transactions are in cash. Buying fiber in the United States and paying in 60 or 90 days was a way to finance the import of raw material. It is important to say, however, that most of the shipments to Mexico were by railroad. It may take 25-30 days to get the paper into Mexico. If you want 30 days after that it is really 60 days bare minimum you are giving to those people.

The only thing I can say is: Know your customer. And be prepared that in order to do business there you need to extend credit between 60 to 90 days.

A. Growing significantly, no. I don’t see it that way. Let me tell you some figures. From 1991 to 2000 total consumption of recovered fiber has grown 6 percent on an annual basis, reaching 3.9 million tons last year. Domestic collection of recovered fiber is growing 3.9 percent annually to about 2.3 million tons collected last year.

There are several factors limiting the growth in the infrastructure in Mexico. Among the most important ones is the lack of available credit and the lack of support from local and state government.

It seems to me that it takes a special type of person — an entrepreneur – to develop an operation based on cash transactions in Mexico.

In addition, two years ago the government didn’t really [consider the recycling] industry. This can be seen most recently with the efforts of collecting taxes. The government has imposed tax conditions making it more expensive for the collection efforts by the existing paper stock dealers in Mexico. That adds a little bit to the problems or difficulties of growing and building an infrastructure for collection.

A. There is no formal announcement on a new machine that I am aware of. However, the OEM, the Mexican Editorial Organization—the guys who bought the Cartonese Ponderosa operation—made a statement about building a new newsprint machine in the near future. Rumors are that if it comes it will take at least two years. But there is nothing really confirmed.

The people inside said the owner is looking into some countries in Europe for buying some of the machinery. We will have to wait and see if that project will come, that’s for sure.

There are also unconfirmed rumors about Copamex Group that they might come up with a new tissue machine soon. But once again there is no formal announcement. I am not sure if that will happen.

A. We do have figures about Waste Management’s exports to Mexico. I would say last year we exported 90,000 tons of paper to Mexico. This year we hope to reach about 100,000.

We need to look into the picture. Basically Waste Management is strong in two grades – OCC and ONP, which are our primary grades. With that amount of paper, if you add together [the consumption of] those two grades in Mexico it amounts to basically 970,000 tons. We are basically saying with that kind of tonnage we are capturing about 10 percent of Mexico’s needs in those two grades. And that is basically where we are today. We want to grow today but we want to make sure we take care of our exposure.

A. No we don’t have any personnel in Mexico.

A. I think so. In this region, at least, corrugated is not that bad. No. 8 news remains a steady grade. It bears a price that is good. Sorted office, coated book, all the de-inking grades will be strong until November.